How Small Restaurants Are Doorstopping DoorDash

DoorDash has been a delivery service on the go, particularly throughout the summer and in the fall of 2018. Its war chest has recently swollen with a recent $250 million funding round co-led by Coatue Management and DST Global. That followed a $535 million round led by SoftBank, Sequoia Capital and GIC earlier this year, bringing the food delivery company to a $1.4 billion valuation.

And that big valuation has come with big expansions. In early August, DoorDash announced it was dipping its toe into the subscription market with the launch of DashPass. The service charges users $9.00 in exchange for free delivery on orders of $15 or more. In its blog post announcing the service, the firm noted that it is well-designed for frequent order-out fans, as the pass essentially pays for itself within three orders per month.

“For just $9.99 per month, you can receive unlimited $0 delivery fees from family favorites like Wendy’s, The Cheesecake Factory, California Pizza Kitchen, White Castle and many more — just look for the DashPass checkmark,” the firm wrote.

In addition to expanding its service offerings, as of the end of August, DoorDash has doubled its geographic footprint in the U.S. and Canada, eyeing an expansion to 2,000 cities by the end of 2018.

Revenue has followed physical expansion. According to the delivery firm, DoorDash is now the fastest-growing last mile logistics platform in the U.S., reporting 250 percent year-on-year growth.

“DoorDash is gaining market share faster than anyone in the space,” DoorDash CEO and Co-founder Tony Xu noted. “We’re thrilled to partner with premier investors to accelerate our vision to empower local economies by being the last-mile logistics player.”

Moreover, DoorDash is increasingly becoming the delivery partner du jour for brands that want to offer delivery, but don't want to build a platform themselves. IHOP, White Castle and Red Lobster are all noted partners, and the brand recently inked an exclusive deal with the Cheesecake Factory. DoorDash has also signed on Chipotle as a delivery partner and has inked a deal with Applebee's.

The problem for DoorDash is not with the partner restaurants that are enthusiastically using its third-party logistics platform to avoid the pitfalls associated with trying to build their own service, like cost, staff training time and uneven demand. The problem that is emerging, however, is with the restaurants that are not officially partnered with the service and would actually prefer not to be.

The trouble has most recently flared up in Florida, where DoorDash announced about two weeks ago that it was expanding into 60 new cities. Among those cities is the small community of Brevard County, Florida, whose various restauranteurs initially barely noticed when DoorDash came to town.

But Darci Kropp, owner of Darci's Bacon Blues in Cape Canaveral, did notice when she started getting complaints about delivery orders that never showed up, despite the fact that her restaurant doesn't offer delivery.

Then she got calls from angry customers who had placed orders that were never delivered. She was disturbed to find out that DoorDash was offering delivery on her behalf without asking her. "I don’t feel comfortable," she said. She doesn't want people she doesn't know handling the food she is preparing.

The issue isn't unique to Brevard County. As the five-year-old company expands its footprint across the United States, some restaurants are getting indigestion over the fact they don't have any formal agreement with DoorDash.

"For the majority of our merchants, being on DoorDash offers not only an additional influx of customers and revenue, but also presents an additional marketing opportunity. For those not interested in being on DoorDash for any reason, we immediately remove them from the platform upon their request," DoorDash noted in an official statement issued to Florida Today.

But merchants like John R. Williams IV, who owns Islands Fish Grill, noted that it can be more challenging than just asking to get off the platform.

"They had my logo, they had my whole menu, everything (on their website)," Williams said. "You go in, and it’s almost like an Amazon."

Both Kropp and Williams said they have been approached by other food delivery services and have declined to participate because they worry that their food doesn't travel well. And, the data shows, consumers tend to blame the restaurant when the delivery order isn't up to snuff: According to Off-Premise Insights' 2018 Takeout, Delivery and Catering study, 82 percent of consumers blame the restaurant the food came from, not the delivery service that brought it, when things go wrong.

It's an interesting thing to watch as DoorDash continues trying to build the dominant meal delivery platform in the U.S. It has clearly won the enthusiastic approval of consumers, not to mention investors. But if small chains that represent local consumer favorites won't play nicely with the platform, DoorDash might find itself in trouble with an important segment of their market.



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